We have investigated keratin and keratin mRNA expression during (1) differentiation of stem cells into epidermis and hair follicles and (2) morphogenesis of follicles. Our results indicate that a type I keratin K14 is expressed early in embryonal basal cells. Subsequently, its expression is elevated in the basal layer of developing epidermis but suppressed in developing matrix cells. This difference represents an early and major biochemical distinction between the two diverging cell types. Moreover, because expression of this keratin is not readily influenced by extracellular regulators or cell culture, it suggests a well-defined and narrow window of development during which an irreversible divergence in basal and matrix cells may take place. In contrast to K14, which is expressed very early in development and coincident with basal epidermal differentiation, a hair-specific type I keratin and its mRNA is expressed late in hair matrix development and well after follicle morphogenesis. Besides providing an additional developmental difference between epidermal and hair matrix cells, the hair-specific keratins provide the first demonstration that keratin expression may be a consequence rather than a cause of cell organization and differentiation.